Standing Committee D

[Mr. Alan Hurst in the Chair]

Commonhold and Leasehold Reform Bill [Lords]

Schedule 12 - Leasehold valuation tribunals: procedure

Question proposed, That this schedule be the Twelfth schedule to the Bill.

Sally Keeble: It may help if I explain that the schedule is about the powers of leasehold valuation tribunals and how they can be used. I shall also tackle the main concerns of the hon. Member for Stone (Mr. Cash), expressed through his amendments, which were directions, written representation and power to award costs.
 Amendments Nos. 118 to 120 would have amended the provisions of the schedule that deal with the ability of the LVTs to make directions. The Government share the hon. Gentleman's concern that LVTs should be given sufficient teeth to ensure that their directions to parties are obeyed. Again, however, we believe that the Bill already makes adequate provision for that. The amendments would have allowed LVTs to issue directions at a directions hearing. However, it is the usual practice of LVTs to use pre-trial review hearings to issue any necessary directions and, if they see a need, they can also use the review to try to find common ground between the parties. We think that it would only confuse matters to create the concept of a directions hearing as something separate from the pre-trial review. 
 Amendment No. 120 would have provided that the procedure regulations included provisions that enabled LVTs to enforce their directions by dismissing applications or excluding the whole or part of a party's case if a party failed to comply with them. The Government agree that LVTs greatly need such powers. The lack of them until now has been a constant hindrance to their work and a major factor in the disappointingly long time that it can take for LVT cases to be dealt with. 
 However, I am advised that the powers in the Bill to make procedure regulations are wide enough to allow us to provide that the LVT may exclude the whole or part of any party's case where that party has failed to comply with directions. Moreover, introducing such a provision might lead courts to interpret paragraph 1 of schedule 12 more narrowly than we would want. I hope that that reassures the hon. Gentleman in terms of directions.

William Cash: So many aspects of the Bill bring us close to one another. I do not suggest that the Minister is backing off, as she has expressed her
 view that the proposals should have more teeth. However, I wonder whether the subject is another that should be considered on Report. An article in The Sunday Telegraph showed the feelings outside the House among people who follow such matters when it stated that
''Even if the LVT rules in your favour, it has no powers to enforce its rulings and you may be obliged to pursue your freeholder to redress through a county court.''
 Such are the prevalent views sculling round the system. 
 When the salt and clear water get together, it is important that the Minister takes a further step, acknowledges the complications of the problem and none the less ensures that directions will be carried through and enforced. In the spirit of co-operation, with which I hope we can continue, I would be grateful if the Minister considered the matter further.

Sally Keeble: The hon. Gentleman made it clear that he wanted to return to the subject on Report, and we will have a long Report stage during which he can do so.
 We have some sympathy with the hon. Gentleman's intentions in tabling amendments to the schedule's provisions on written representations. It is not our intention to deny either party their right to an oral hearing where natural justice requires such a hearing. However, we also do not wish to open the way for Machiavellian landlords to prevent leaseholders from using the written representations route as a way to push up costs and thus discourage leaseholders from exercising their rights. 
 It may help if I explain our reasons for creating a written representations route, the circumstances under which we consider that it should be used, and how we might encourage that. The written route is primarily aimed at simple cases involving small sums. In such cases, the fees payable for challenging unreasonable service charges may be disproportionate to the sum at issue. For example, disputes about administration charges may involve only relatively small sums. It is not worth spending £300 or more to take a case to the LVT unless substantially more than that is at stake. 
 In any event, we are considering changes to the LVT fee structure through procedure regulations, so that the fees payable are related to the sum in dispute. That would mirror the approach adopted in the county court. However, LVTs are publicly funded bodies and we have to consider the interests of the general taxpayer when deciding the level of fees. The cost of a full hearing, with three LVT members in attendance, may simply not be justified where only small sums are at stake. One purpose of the hearing fee, which does not begin to cover the full cost of a hearing, is to discourage parties from wasting public funds on cases with little merit or ones that are de minimis. 
 Many such small cases could easily be resolved by making written representations to a single member with relevant expertise. That approach would reduce the cost of providing the LVT service and enable more cases to be dealt with in a shorter time. We therefore wish to change the fee structure to encourage it. All applicants would still be required to pay an application 
 fee, but a further fee would be payable only if the matter was dealt with at a full hearing. The written representation route would therefore be a more cost-effective way to deal with disputes over small sums from the perspective of the Government and that of the parties themselves. 
 We do not seek to deny either party the opportunity for a full hearing before the tribunal in cases where justice demands it. In some cases, an important principle may be involved even though the amount at issue is modest. However, we see a danger that some landlords may insist on a full hearing simply to push up the costs to a disproportionate level and thus discourage the leaseholder from proceeding. To deal with those conflicting concerns, the procedure regulations will need to set out rules to govern the use of the written representations route. For example, we might provide that the LVT should determine whether the written representations route would be appropriate for a specific case. We would be happy to consider any alternative suggestions that might be made when we consulted on the procedure regulations, however. The hon. Member for Stone will have plenty of opportunity for involvement at that stage. 
 It is also worth noting that both parties would, of course, have the right to seek leave to appeal to the Lands Tribunal against the decision, whether a full hearing was held or not. The system would be open to abuse if we were simply to make use of the written representations route dependent on the agreement of both parties, so the Government feel that the proposals in the schedule provide the best way forward. 
 My brief final point is on the power to award costs. Amendments Nos. 123 to 126 would have related to the new power for LVTs to award costs where one party had acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably, subject to a maximum award of £500. We heard plenty this morning about the possibility of that. LVTs sometimes find it difficult to deal with parties who refuse to comply with directions or who act abusively at a hearing. The new powers provided by paragraph 10 would help them to control the parties more effectively. The maximum sum payable could be increased through regulation, but only with the approval of both Houses. The grounds on which costs might be awarded are deliberately expressed in very broad terms. 
 In amendment No. 124, the hon. Member for Stone has tried to particularise the circumstances. There are certainly good examples of the sort of behaviour that we would wish to subject to a cost penalty. However, we believe that the provisions encompass all the grounds that the amendment would seek to introduce. Moreover, introducing such detailed grounds might lead courts to interpret paragraph 10 more narrowly than we would wish. Our proposals represent the best way forward. 
 Hon. Members have sought to empower LVTs to award costs without limits. That would disadvantage leaseholders. When service charge disputes were still a 
 matter for the county courts, landlords could intimidate leaseholders with the threat of large bills for costs, as landlords were generally able to afford the best legal advice. Leaseholders doubted their ability to win their cases, even when they felt that they were clearly justified in their challenge, and they often decided not to take their cases to court. That is why the Bill provides for a cap on the maximum sum payable—I would argue that that deals with some of the issues that were raised this morning. 
 If the cap did not apply, leaseholders might fear that even an innocent mistake in interpreting directions or failure to meet a deadline through some mishap or confusion would lead to a very large costs bill. Those fears would be exaggerated by their lack of previous experience of LVT proceedings. Unscrupulous landlords would encourage such fears and use them to discourage leaseholders from exercising their rights. When the issue was debated in the other place, it was suggested that that concern was not justified, as the proposed amendment would also require the LVTs to consider the financial resources of the offending party when deciding on the award of costs. We do not agree that such an ambiguous limitation would provide sufficient reassurance, nor do we think that it would be better to fetter the discretion of the LVTs in that way. We would not want LVTs to feel inhibited from punishing unreasonable behaviour merely because it might cause a little hardship. 
 The final amendment in the group was aimed at making it clear that costs can be awarded in accordance with clause 86. When a similar amendment was tabled in the other place, we realised the potential for conflict between clause 86 and paragraph 10 of the schedule, and amended the Bill accordingly. Paragraph 10 now states that costs may be awarded in accordance with specific provisions made under any enactment. That would include the provisions made under clause 86. I hope that that provides the arguments that are needed to persuade hon. Members that the schedule will play an important part in making the LVTs workable and ensuring that leaseholders and freeholders can get proper justice through them, and that it should, therefore, be included in the Bill.

William Cash: I am grateful to the Minister not only for her description of the Government's policy but for the manner in which she has handled the fact that I decided that I would not move the amendments, because I found that I had been overtaken by the Chairman's ruling at the point when I thought that we would be dealing with them. As a result, we have dealt with those matters quite adequately and we are grateful for the fact that we are making progress. I therefore recommend that we do not vote against the clause.
 Question put and agreed to. 
 Schedule 12 agreed to.

Clause 166 - Appeals

William Cash: I beg to move amendment No. 113, in page 86, line 7, at end insert—
'( ) But every appeal will be limited to a review of the decision of the leasehold valuation tribunal unless the Lands Tribunal considers that in the case of an individual appeal it would be in the interests of justice to hold a rehearing. 
 ( ) And the Lands Tribunal will not receive oral evidence or evidence which was not before the leasehold valuation tribunal unless it considers that it would be in the interests of justice to do so.'.
 The clause deals with appeals procedures with respect to leasehold valuation tribunals. It provides that appeals against such decisions should be made to the Lands Tribunal. Subsection (3), having already stated that the appeal may be made only with the permission of the leasehold valuation tribunal or the Lands Tribunal, states that the appeal must be made within the time specified by rules under the Lands Tribunal Act 1949. 
 We are proposing that there should be included arrangements under which every appeal would be limited to a review of the decision of the LVT, unless the Lands Tribunal considered that in the case of an individual appeal it would be in the interests of justice to hold a rehearing. The second point is that the Lands Tribunal should not receive evidence that was not placed before the LVT unless it considers that it would be in the interests of justice to do so. I do not think that any further explanation is needed; our aim is clear. However, I shall be interested to hear the Minister's response.

Sally Keeble: We have discussed the issue previously, as the hon. Gentleman raised it in connection with an earlier amendment. However, it might be useful for me to go through the arguments again, because they relate more closely to this clause and this amendment than they did to the previous one. The effect of the amendment would, as he said, be to alter the procedures for appeals to the Lands Tribunal from the LVT. The question of whether an appeal should involve a full hearing or be limited to a review of the original decision is a complex matter, and one that arises in many different contexts; it deserves very careful consideration indeed.
 As I said earlier, the Government are examining reform of the tribunal system in the light of the report by Sir Andrew Leggatt. Having completed the consultation exercise, we expect to announce our conclusions in the summer of this year. I am sure that the Committee will agree that an important and complex issue such as this is best considered as part, and in the context, of the Government's wider-ranging work. I therefore ask the hon. Gentleman to withdraw the amendment, given that the area is under serious consideration and will shortly be the subject of recommendations from Government.

William Cash: Without over-egging the pudding, I must say that we seem again to be making progress. There are improvements in the pipeline which everybody would no doubt like to see happen today or tomorrow. Our amendments seem to be achieving a degree of response from the Government with which I am satisfied, so I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 166 ordered to stand part of the Bill. 
 Clause 167 ordered to stand part of the Bill. 
 Schedule 13 agreed to. 
 Clauses 168 to 170 ordered to stand part of the Bill.

New clause 1 - Landlord's share of marriage value

'Paragraphs 4, 4Aa and 4B of Schedule 13 to the 1993 Act (landlord's share of marriage value) are hereby repealed'.'—[Mr. Sanders.]
 Brought up, and read the First time.

Adrian Sanders: I beg to move, That the clause be read a Second time.
 New clause 1 goes to the heart of our deliberations. I did not join in the earlier debates on marriage values, because other people covered what I wanted to say. However, some of it needs to be said again. We have had a good debate on leasehold. I hope that those who have made a forceful case against leasehold and marriage value will support the new clause. We heard that leasehold shackles people into a contract, despite the fact that the leaseholder may have paid at least as much as a neighbouring freeholder for the benefit of using the property. 
 One would not buy a car in that way. Imagine, Mr. Hurst, that you had taken up an offer to buy a Rover 75 for £14,000 on leasehold over three years. On top of that, you would have to pay a maintenance fee and your insurance would be fixed—you could not shop around like other car owners. The road recovery scheme would be included, but you would have to use the one recommended by the freeholder; you could not choose to join the AA or the RAC. The garage would decide when it was time to service the car and would send you a bill saying that you would have to have a new set of wheels fitted, although you knew that you did not need them—any more than you needed a service, a re-spray, or a tune-up. Other people would take all the decisions about the management and maintenance of the car and you would be lumbered with the bills. No one would buy a car under such a system, yet hundreds of thousands of people purchase property in that way.

Shona McIsaac: When this hypothetical leasehold car is taken in for a new set of wheels, whether or not the owner wants them, he will also be charged £600 or £700 plus value added tax for the privilege, but all he is buying is the right to drive the car for 99 years.

Adrian Sanders: The hon. Lady is right.
 I do not say that leasehold must go, because for some people it is an appropriate way of managing the home. For instance, many pensioners do not want to be bothered with management decisions about their home and leasehold is obviously right for them. Indeed, many leasehold properties are purpose-built for old people. Although maintenance fees and so on may lead to arguments from time to time, leasehold is nevertheless preferable to such people. I would not want to take away the choice of leasehold by abolishing it. However, for the majority of people, 
 leasehold is a highly inappropriate form of tenure and it is unfair. 
 The biggest barrier to enfranchisement is the marriage value. The inclusion of marriage value in the computation of the price to be paid to the landlord on enfranchisement is the final straw. For the freeholder, it truly is a case of having one's cake and eating it. The basic price to be paid is what the freeholder loses; that is the market value of a reversion being acquired by the leaseholder or a right-to-enfranchise company, or the reduction in the market value of the reversion as a result of the granting of an extended lease. 
 There is nothing wrong with that principle, but we want to remove the double whammy faced by leaseholders, which is that the market value paid to the freeholder is increased on the footing that the leaseholder is a special purchaser and is willing to pay more than someone buying a freehold as an investor. We have a warped market. Getting rid of marriage values would bring us closer to a proper market situation. It is wrong in principle. The freeholder should not be allowed to take advantage of the weakness in the bargaining position of the leaseholder. It is an inequitable relationship—the freeholder holds all the aces and gets the icing on the cake with the marriage value at the end of the enfranchisement process. 
 Marriage value should be eliminated from the equation. The leaseholder should have to pay what an investor would pay for the property—nothing more or less. He is not in a special position; it is an artificial market.

John Taylor: It is not a true market at all.

Adrian Sanders: No, it is not. If we removed marriage value, it would be fair for the purchaser on enfranchisement to pay what anybody else would expect to pay, were they purchasing that property for an investment. That is why we have tabled the new clause.

Shona McIsaac: The Bill is causing a lot of interest among other Members of the House and I seem to have become the recipient of all their letters and queries about it. The question that comes up most often is, ''What is marriage value?'' People are writing to other MPs, saying ''I have been married, how does this affect me?'' It is a poorly understood concept. If we are not going to get rid of marriage value, let us at least change its name. Perhaps we can call it ''landlord's bounty'', then people will know exactly—

Gordon Marsden: In view of continuing and entirely welcome developments from the Government in this area, might I suggest that we replace the term ''marriage'' with ''partnership''?

Shona McIsaac: We could certainly do that and I welcome the suggestion. We shall have to see what the Minister says.
 I must tell the Liberal Democrats that I do not think that marriage value will be scrapped. The 
 Government will not agree to that, although it has been a long-term Labour commitment to do so. The Government do not want to get rid of marriage value—even though many hon. Members feel that it is profoundly unjust and unfair—but I have been trying, through amendments and in the course of debate, to ensure that it applies as little as possible and that we can have a sort of partial abolition. I hope that that will tally with my hon. Friend the Minister's sterling attempts to be seen to be fair to both landlords and tenants. 
 I have maintained, for example, that if someone enfranchises after lease extension, which is a welcome change in the Bill, and was originally entitled to purchase the lease on original valuation basis, where marriage value does not apply, he should be able to continue to buy the freehold on that basis. To suddenly say that special valuation basis applies and, thus, so does marriage value, is an injustice. It creates a new category of leaseholder and increases the number of householders who will be affected by marriage value. 
 If the Minister is not going to get rid of marriage value per se, I should like her to come back on Report and delete the sections of the Bill in which the purchase price of the freehold is based on special valuation for all those extensions. Similarly, I have suggested that if someone originally enjoyed a 99-year lease, he should be able to enjoy a 99-year lease extension. Again, marriage value would not apply. 
 I do not feel that I have had an adequate explanation as to why the extension is only 50 years. As marriage value will apply to purchase price on lease extension, that will leave too many homeowners—enfranchised or not—in a difficult position with regard to selling their homes due to the reluctance of many lenders to lend on less than 60 years of unexpired lease. 
 The unfairness of marriage value was extremely well articulated by my hon. Friend the Member for Brent, North (Mr. Gardiner) on Second Reading. He made the analogy with the car and how we would react if we had to make the expensive purchase of a car on similar terms to those on which we are expected to make the expensive purchase of a leasehold house. 
 Few people understand what marriage value is about. I have always believed that the law should be clear and simple.

William Cash: At the very moment when the hon. Lady said ''clear and simple'', I thought that I might invite her to consider a definition that I have come across, which seems to clarify the matter in two sentences:
''Marriage value arises because the value of a lease and the value of a reversion, if sold separately, is usually less than the value of the same property if sold with vacant possession. The merger of the lease and the reversion produces a boost in value known as the marriage value.''
 If that is both clear and simple and in ordinary language, and if hon. Members can understand it vicariously through the hon. Lady, perhaps it is helpful for all of us.

Shona McIsaac: I think that that has made it as clear as the waters in the river Humber. Anyone who
 has seen the Humber will know that that is as clear as mud. Most people do not understand reversion, so the definition does not help. When the many elderly leaseholders in my constituency come to enfranchise, they do not understand what reversion means.
 If we are going to compensate the landlord, there has to be a much simpler way of doing it than through this bizarre process. My hon. Friend the Member for Coventry, South (Mr. Cunningham) passed me a letter from one of his constituents. He came up to me looking rather worried, because one of the questions in the letter was, ''Clarify marriage value. I do not understand it.'' It also talks of insurance scams, by the way, but we shall discuss those under new clause 17. I have also had letters from the residents of Lima court in Reading about marriage value, which I have discussed with my hon. Friend the Member for Reading, West (Mr. Salter). He has taken up the issue of marriage value with Ministers previously. Like so many hon. Members, he feels that marriage value is unjust; it cannot be justified to residents. 
 I have had a great deal of correspondence on the matter from leaseholders from the south coast to the north-east and a great many from the north-west, which seems to be the area with the greatest number of leasehold houses. There are 2 million such properties, so we must be concerned about marriage value, which is the premium payment given to the landowner by someone who has a special interest in purchasing the freehold. 
 Perhaps we should consider two different types of tenant. That will demonstrate the unfairness very starkly. The first is in a leasehold house, the second in a council house. They have both lived there for a long time and according to law they are both tenants. The leasehold homeowner has paid for a mortgage and for the upkeep of the property and has improved it over the years, rewiring, replumbing, adding central heating, putting on a new roof, damp-proofing—very essential in Grimsby and Cleethorpes—and so on, all at his own expense. The council house tenant, on the other hand, might have had his home similarly improved, but by the local authority. Both categories have the right to buy and both could be subject to compulsory purchase—I have reservations about calling it that, but that is how the law describes it—yet long-term council house tenants can buy their home freehold. I appreciate that some tenants live in flats and therefore can buy only the leasehold, but in either case they buy it at a substantial discount. 
 The leasehold homeowner, however, has to pay a premium when purchasing the freehold and I find that disparity particularly bizarre. The freeholders receive their money on day one and may not need to be compensated; if they are to be compensated, we should find an easier way of doing it. Marriage value is not an easy concept to understand. 
 I seek the Committee's forbearance. I am about to do some of my notorious mathematics; I could not multiply 21,000 by 10,00 the other day, so I have carefully written out this example. I assume a purchase price of £250,000 on a house with a 99-year lease at a fixed ground rent of £75 a year. In my constituency, £25,000 is a more common price, but for the benefit of 
 Committee members from the more affluent parts of the country, I am using figures that they will find more normal. 
 I assume that the freeholder will be entitled to 100 per cent. of the reversion in 2099. The value of £250,000 deferred 99 years at 6 per cent.—I am being particularly generous in using such a figure—is £781.025. The difference in value between a freehold and a 99-year lease on day one is no more than that, but what has the leaseholder purchased with the mortgage? The answer is that he has bought 99.687 per cent. of the freehold value of both land and buildings. If he has not bought 99.687 per cent. of those, what on earth has he paid for? The reality is that he has paid more than the freehold value; adding those previous figures together will show that on day one he paid a maximum of £250,781. 
 Our hypothetical leaseholder has to pay the ground rent for the next 99 years at £75 a year. Using the same 6 per cent. interest rate, the capitalised ground rent works out at £1,246.31. On day one, the leaseholder therefore has a mortgage of £250,000 and the capitalised ground rent of £1,246. That makes a total of £251,246. Comparing that total with the £250,781 that he paid on day one means that the leaseholder is paying the freeholder an excess of £465. The freeholder has realised more than 100 per cent. of the value of the property on day one, expends not one penny more on the property and can look forward at the end of the 99 years to claiming back 100 per cent. of the price. That is completely bizarre. 
 It is more likely that, after 70 years, the leaseholder will purchase the freehold and pay 50 per cent. of the so-called marriage value—that is, the difference between the leasehold value with 29 unexpired years and the value of the freehold. It could be argued that the freeholder is entitled to no more than the capitalised value of the ground rent for 29 years. That would be a much more reasonable way of compensating him.

William Cash: I find that interesting. Was that question set by Edexcel?

Shona McIsaac: I do not understand the question, so I shall not answer it.
 The freeholder is having two bites of the cherry and can come back after 99 years and dig up the whole tree. We used the analogy of cars earlier; perhaps in this case we should use the analogy of a chemist. It would be absurd for a chemist to charge an ill person a premium for a drug because they have more interest in buying it than a fit and healthy person. The special valuation basis and marriage value could contravene human rights legislation. I would like the Minister to comment on that. 
 If the Government are not going to abolish marriage value—I know, deep in my heart, that they will not—we could examine ways of calculating the amount so that some allowance is made for the leaseholder's long-term maintenance costs. The costs born by the leaseholder are usually far in excess of the costs of any improvements made by the freeholder. An allowance is made for that in the calculation of marriage value and it is always in excess of what the 
 leaseholder has done. We should consider introducing some sort of deduction from the marriage value of the value of the enfranchising tenant's improvements to the property. 
 That proposal is linked to the amendments that I tabled earlier, which required freeholders to detail the purchase price. If they quote a marriage value figure, the enfranchising homeowner could try to bargain by deducting an amount for the improvements that he has made. 
 I know that the Minister will not accept the abolition of marriage value, but I hope that she understands that there are deep concerns about the issue. Many hon. Members find it disquieting that marriage value has remained in the Bill. I hope that we can deal with the matter again on Report.

Sally Keeble: We have discussed marriage values several times, so I will not rehearse all the arguments but I will go over some of them. It is clearly one of the contentious issues in the Bill and it is a major issue for the leasehold reform campaign groups. Throughout the passage of the Bill, the Government have kept to certain principles and conventions. We have recognised the property rights on both sides of the equation of both the freeholder and the leaseholder, although some people would say that the freeholder should not have any rights. If we did not recognise their rights, we might run into difficulties with the Human Rights Act 1998. My hon. Friend the Member for Cleethorpes (Shona McIsaac) must recognise that that Act cuts both ways.

Andrew Selous: I am interested in how the Minister feels what she has just said about the Human Rights Act fits in with recent events in Scotland, where large landowner's rights are being altered by the Scottish Parliament. If those measures are deemed to be in line with the Act, which I assume they must be, I question the Minister's remark that varying freeholders' rights in this case would contravene the Act. Will she comment on that?

Sally Keeble: I will not comment on something that is being considered by a separate regime in Scotland. I have difficulties with some English legislation. The Scottish system, including provisions on home tenures, is substantially different and I do not want to stray on to that.

William Cash: Under the Scotland Act 1998, if the Secretary of State believes that a provision is ultra vires, he can sort the matter out on his own account. An avenue is open, but I do not think that we should pursue the matter too far.

Sally Keeble: No. I would not want to stray into the territory of the Secretary of State for Scotland. We have recognised the property rights of both sides of the equation and I have argued consistently in that respect throughout our proceedings.
 The second principle that we have sought to maintain in the Bill, as part of preventing some the abuses that have arisen around freehold, is that of 
 preventing one side from realising a windfall profit. Some hon. Members have made the case that we should not let the freeholder realise windfall profits, but an equal case can be made that the leaseholder should not be allowed to do so either. 
 There has been much discussion of the nature of marriage value and the nature of the sale of the freehold. We have used the term compulsory purchase, which has been contested. The nature of the transaction is most particular, because it is where the two different and legitimate interests in the property are united. In that sense, it is different from some other transactions. In examining how the matter should be handled, we have rationalised and improved the system. I do not want to deal in great detail with the changes that we have made, but I will run through some of our proposals to simplify the valuation basis, since hon. Members are right to say that the Government do not intend to abolish marriage values. 
 The provisions of the Leasehold Reform, Housing and Urban Development Act 1993 were defective in two ways. They provided that the freeholder's share could never be less than 50 per cent., and could be higher. That was unfair, because it was possible for the freeholder but not for the leaseholder to argue for a higher share. It also led to arguments between the parties, which could be protracted and expensive, about how big the shares should be. The provisions encouraged the parties into further arguments about the amount of marriage value, even when it was obvious that there would not be any. 
 In practice, in all but a few highly unusual cases, LVT decisions split marriage value equally between the parties, although that has not prevented landlords from arguing for a larger share. We have therefore maintained that marriage value should be split 50:50 in all cases. The clauses that we have already discussed have made such provisions for collective enfranchisement, lease renewals and enfranchisement of leasehold houses. 
 We have also, as hon. Members know, made provision for a cut-off at the 80-year point. We have heard different views on the principle of the cut-off and the point at which it should be set. Our objective has been to prevent costly arguments that are disproportionate to the sums at issue. We accept that LVTs have sometimes awarded an element of marriage value where the unexpired period of the lease is 90 years or more. That would normally be a relatively small sum and is in addition to the other aspects that we must consider. 
 A number of representations have been made to us by professionals with long experience in the field to that effect that before the 1993 Act came into force, flats with very long leases did not command an appreciably higher price than those with unexpired leases of 80 years. That shows that, at that time, leaseholders placed no additional value on the ability to obtain a new, longer lease. 
 A key principle of the 1993 Act was that valuations for collective enfranchisement and lease renewals should be made on the assumption that the Act did not exist. In practice, the Act's operation has distorted 
 the market, so that transactions have taken place including an element of marriage value when the unexpired period of the existing lease exceeded 80 years. 
 That effect has been assisted by the fact that some experienced and well resourced landlords, especially on the great London estates, have brought to bear on the transactions the best professional advice that money can buy, often leaving the leaseholder somewhat outgunned. Our proposals, which we have discussed and debated at some length, would restore the original objectives of a provision under the 1993 Act to the valuation process. 
 I should specifically respond to the suggestion made by my hon. Friend the Member for Cleethorpes—and perhaps the hon. Member for Torbay (Mr. Sanders)—that people would not agree to buy a car on such a basis. My hon. Friend mentioned council houses and suchlike. The dispute centres, as it has in several of our debates, on the nature of what leaseholders buy when they first purchase their leases. They buy not the freehold, but a long lease, and when they sell, they sell a long lease. For some people, that is not an attractive option; they simply will not buy a leasehold property. In providing commonhold, we have clearly provided a far preferable form of tenure for flats; we have also made arrangements to give people the right to manage.

Shona McIsaac: Does my hon. Friend agree that in many parts of the country people do not have a choice between leasehold and freehold if the entire area is leasehold?

Sally Keeble: I certainly agree that we do not have options for flats. We have introduced commonhold as a form of tenure, and we believe that it will be the tenure of choice. If some people have bought out the freehold of their leasehold properties, there are freehold properties in which people have enfranchised themselves on the market in different areas. If people buy a long lease, it cannot be argued that they buy the same thing as a freehold property, and that is what several of our discussions have centred around.
 The Bill is designed to provide people with more options to manage their properties or enfranchise. We have provided a different form of tenure for flats, but we cannot pretend away the fact that if people buy a long lease, they do not buy a freehold; that is a different type of purchase.

Andrew Selous: Will the Minister specifically respond to the clear worked example given by the hon. Member for Cleethorpes? I am a little puzzled about how the Minister can say that leaseholders could enrich themselves, given what they originally paid and continued to pay. That worked example, with the original price paid, ground rent, improvements and so on, was demonstrated extremely clearly, so I shall not go through it again.

Sally Keeble: I cannot pretend to have taken down all the figures that my hon. Friend the Member for Cleethorpes gave, but I will ensure that the case she set out is considered carefully. If leaseholders could buy out the freehold of property cheaply, so enfranchising themselves, and sell on the property at the current
 market price—a freehold property price—there would be an opportunity for substantial windfall profits. Some might say that that is perfectly justifiable. In some circumstances, it would be possible for a leaseholder to realise a windfall profit. Our position throughout has been to prevent windfall profits, recognise property rights on both sides of the equation, and prevent abuses. Our approach to marriage value has followed those principles.

Adrian Sanders: Will the Minister give way?

Sally Keeble: I keep trying to wind up, but each time I am interrupted. I shall just finish my point so that hon. Members have an opportunity to speak. We regard marriage value as a legitimate element of the price payable for a freehold or longer lease, and our arguments hold water.

Adrian Sanders: With respect, I do not think that the Minister fully understands marriage value. There is no windfall if marriage value is removed, because marriage value comes on top of the market price, and it is a notional market. My argument is that if marriage value is removed, people pay the market price; that is fair, equal and open to everyone. I do not know where the Minister's idea of a windfall comes in. The windfall is there for freeholders in the marriage value—it is their bounty. To return to the example of cars, someone who drives a car for three years and offers to buy it when the three years are up will pay more for it—perhaps £6,000 when the value is £5,000—because he is trying to enfranchise himself. The windfall goes to the freeholder, not the leaseholder.

Sally Keeble: Perhaps I did not make myself clear. I was talking about what happens when there is no marriage value. Our arrangements will prevent windfall profits and respect property rights on both sides, prevent abuses and operate equitably.

William Cash: As the Minister said, we went through several of the arguments when we discussed clause 132 on Tuesday morning, and they also arise in relation to clauses 124 and 125. I said then that we would reconsider the matter in the light of the Minister's comments, particularly on the new clause. She has now given us an extensive explanation, and the best thing that I can say is that the Opposition are reserving their position. Our previous proposals will be subject to and without prejudice to our discussions on Report.
 About 64 per cent. of respondents in the consultation process, the vast majority of whom were leaseholders, wanted marriage value to be abolished altogether. The issue was extensively discussed in the House of Lords. However, all members of the Committee understand—and the hon. Member for Cleethorpes has come to recognise—that marriage value, however contentious, is part of the accepted norms. That is not to say that we shall not continue to consider the matter until Report stage.

Shona McIsaac: Does the hon. Gentleman agree that I said that if we were to compensate the landlord, there would have to be a much simpler, clearer way of doing so—one that the enfranchising leaseholder could understand? The method, but not necessarily the principle, is flawed

William Cash: The hon. Lady went through some complicated calculations to arrive at her earlier figures, and we might apply them to a £25,000 house in her constituency. If matters were dealt with not by the respective lessee and the freeholder but—as would inevitably be the case, particularly if those concerned were less well-off—by agents on their behalf, the costs would soon begin to escalate. I am reserving our position on the matter and need add no more for the time being.

Adrian Sanders: In the light of the discussion, I reserve our right to return to the matter on Report. I therefore beg leave to withdraw the motion.
 Motion and clause, by leave, withdrawn.

New clause 9 - Exclusion of buildings qualifying for enfranchisement under the 1993 Act

'( ) The 1967 Act shall not apply to any building which meets, or may at sometime be reasonably expected to meet the qualifying tests in Part 1, Chapter 1 of the 1993 Act.'.—[Mr. Cash.]
 Brought up, and read the First time.

William Cash: I beg to move, That the clause be read a Second time.
 The effect of the new clause would be to exclude certain buildings that qualify for enfranchisement under the 1993 act. The clause speaks for itself and I shall be grateful to hear what the Minister has to say.

Sally Keeble: I hope that we shall not delay over this proposal, which aims to prevent the head lessee of a house from enfranchising in cases where the house has been converted into flats, which have been let to long leaseholders who themselves qualify for the right to enfranchise collectively. We have already debated amendment No. 102, which would achieve exactly the same end. In view of the fact that the measures that the hon. Gentleman wants are already in the Bill, I hope that he will agree to withdraw the amendment.

William Cash: Anticipating that that was the Minister would say, I am very glad to beg leave to withdraw the motion.
 Motion and clause, by leave, withdrawn.

New clause 12 - Abolition of forfeiture

'A right of re-entry or forefeiture under any proviso or stipulation in a lease of a dwelling for a breach of covenant or condition in the lease shall not be enforceable by action or otherwise'.—[Dr. Iddon.]
 Brought up, and read the First time.

Brian Iddon: I beg to move, That the clause be read a Second time.
 You were very kind this morning, Mr. Chairman, in allowing us to have a wide-ranging debate on forfeiture. I do not intend to repeat arguments that I have already made, but I stress to the Minister that I am firmly of the opinion that forfeiture should be abolished—abolition is my preferred option. Forfeiture does occur—I gave some examples earlier—and although there may not be many instances in which it is followed through, several 
 hon. Members have referred to the fact that very threat causes great human misery; the words ''draconian'' and ''medieval'' were used by hon. Members of all parties. 
 Earlier today, I felt that there was almost wholehearted cross-party support for this measure. I remind the Minister that it is not a Labour party issue, or a Liberal Democrat or Conservative one: there was true consensus this morning. I remind the Minister also that in paragraph 12 of the DETR document that followed the wide-ranging consultation on the draft Bill, the Government promised at least to compensate individuals who had suffered or were about to suffer forfeiture. Regrettably, nothing in the Bill delivers that promise. It is a key issue—people can lose properties worth £350,000 and not gain a penny. Fiona MacMillan has lost £90,000 in legal costs and her health has broken down as a result, and hers is just one of several cases that we were quoted. 
 If the new clause were accepted, it would collapse clauses 160 to 162, which we have already discussed. Those clauses, as the Minister rightly pointed out earlier, take us some way—they make progress along the forfeiture route. However, the whole business of forfeiture is draconian and medieval and causes so much misery that it should be abandoned. 
 Proportionality was mentioned. Forfeiture is out of all proportion to the breaches against which it is targeted—breaches of the covenant. Such paltry sums are involved compared with the price of the property on the free market that forfeiture seems draconian.

William Cash: The hon. Gentleman is making his case—and he knows that there is a lot of interest on the Opposition Benches in the objectives behind his arguments. However, he cannot really say that the sorts of breach of covenant that have, for obvious reasons, come up in the course of debate, as a result of correspondence and so on, are the only sorts of breach of covenant that give rise to the problem. It would distort the picture if anybody reading the transcript of this debate thought that we were making decisions based on the de minimis problems, when there is a stack of other circumstances in which breaches of covenant arise and it would be extremely difficult for anybody to suggest that a person who had committed one of those breaches should not end up leaving the property. I gave some examples this morning. I would ask him to consider that. His new clause is something of a nuclear option.

Brian Iddon: I have considered it, and the hon. Gentleman is ahead of my summary of my current position on the issue. I have listened to his arguments that there are other cases for forfeiture. I was dealing just now solely with forfeiture for breaches of covenant connected with failure to pay service charges or ground rent. Landlords have taken action against people for paltry sums; this morning I mentioned a sum of £200—less, in fact—in respect of a property worth more than £70,000. There are other mechanisms for retrieving such sums. Hon. Members mentioned a charge on the property and the hon. Member for Stone gave other options. The Government need to consider those options before Report.

Julian Lewis: Is not part of the problem the fact that the freeholder can be judge, jury and executioner in his own right? He can set a cost to the leaseholder at a rate that is manifestly unfair, but then wave this nuclear option of forfeiture in the face of the leaseholder if the leaseholder protests. I am sure that that happens all the time. The fact that forfeiture is not used very often does not signify anything—nuclear weapons are not used very often, but many of us feel that that is because they serve their purpose of deterring mischief in the first place.

Brian Iddon: I have listened to the hon. Gentleman comments and of course I understand. At the very least, the Government should deal with the question of compensation. It is most unfair that a person can have taken from him a house that has gained in value in the many years that he has lived there, but he does not gain a penny when forfeiture is used. I am reluctant to drop the new clause, but I am prepared to defer its consideration until Report, which will give the Government time to come up with some commonsense proposals, preferably by way of Government amendments. I beg to ask leave to with withdraw the motion.
 Motion and clause, by leave, withdrawn.

New clause 13 - Low rent test: extension of rights

.'. In Schedule 9 to the Housing Act 1996 (low rent test: extension of rights), after subsection (3)(c) of paragraph 1 (1AA) insert '', and 
 (d) the freeholder satisfies a leasehold valuation tribunal that the house is integral to the management of the estate concerned and has been leased on terms relating to that purpose. 
 (4) An application to a leasehold valuation tribunal in accordance with paragraph (d) above shall be made by the freeholder within two months of his receipt of the relevant notice of the leaseholder's claim to enfranchise under the terms of this Act''.'.—[Shona McIsaac.]
 Brought up, and read the First time.

Shona McIsaac: I beg to move, That the clause be read a Second time.
 This is a fairly simple clause relating to rural properties. It deals with estate houses. There is a loophole that unfairly discriminates against former estate houses that have been sold on leasehold; because they are on estate land—not council estate, but estate in the landed gentry sense—their owners cannot enfranchise under current law. In the new clause, I suggest that the owners of any properties other than those that are integral to the management of the estate should be entitled to enfranchise. I hope that my hon. Friend will consider accepting my new clause.

Sally Keeble: The rural exemption exists to prevent the break-up of country estates. When the right to enfranchise was first extended to leaseholders who could not pass the low rent test, it caused great concern among some rural landowners. They argued that they would not have leased houses that were an integral part of their rural estate had they thought that there was a risk of the properties being permanently detached from the estate. The Government accepted that argument.
 We have some sympathy for the suggestion that the rural exemption should be amended so that it is better targeted on the properties that we want to exempt. The reasoning behind the exemption is, however, not linked to the way in which a rural estate is managed and has more to do with the long historic association between certain houses and rural estates. Moreover, it would not be right to amend the rural exemption without first consulting the interested parties. We cannot, therefore, realistically resolve the issue in time to deal with it during the passage of this Bill.

Shona McIsaac: I thank my hon. Friend for that explanation, and I am glad that she acknowledges that there is a loophole that needs to be sorted out. I hope that she will consult and introduce proposals in future. I beg to ask leave to withdraw the motion.
 Motion and clause, by leave, withdrawn.

New clause 14 - Tenants of houses on long lease to have first right of refusal on disposal

'.—(1) Section 1 of the Landlord and Tenant Act 1987 is amended as follows— 
 (2) In subsection (2), before paragraph (a) insert— 
 ''(za) they consist of an individual house;''.'.—[Shona McIsaac.]
 Brought up, and read the First time.

Shona McIsaac: I beg to move, That the clause be read a Second time.
 Compared with valuation price, original valuation and marriage value, the philosophy behind the new clause proposal is pure and simple: the right to purchase a freehold of which the landowner voluntarily disposes should be offered first to the leaseholders in houses before going on to the open market. Such a right exists for leaseholders in flats. 
 I have another excellent departmental booklet, entitled ''Right of first refusal for long leaseholders and other tenants in privately owned flats''—I find intriguing the use of the words ''privately owned'' in this context. The introduction states that such tenants have a right of first refusal and that a landlord who does not allow them that right commits a criminal offence. Leaseholders in houses do not have that right and, although I have been through the relevant debates, I can find no objections to their being given it. The Government's response to the consultation process, as set out in the DETR leaflet of January 2000, refers to the right of first refusal, saying: 
''We propose to extend the right to houses. The current definition of qualifying tenant applies to regulated tenants as well as long leaseholders. We propose to further extend it to assured tenants, who have a similar long-term interest in the building, but not assured shorthold tenants.''
 I should like the Minister to agree that that is sensible and would create a level playing field between houses and flats. 
 If we offer the right of first refusal to leaseholders in houses, we shall avoid some of the abuses and sharp practices that many hon. Members have detailed. For example, if a landowner wanted to sell off a whole estate or a block of streets—that is not unusual—he would have to tell the freeholder. Neither the special 
 valuation basis nor marriage value would be relevant if there were right of first refusal. New landlords would not have the ability, as they have now in respect of houses, to write to all the tenants to explain who they are and to try to set new ground rents. In their attempts to get money, they go over the covenants with a fine-toothed comb to see whether there are any breaches. 
 The right of first refusal would help to avoid scams, especially the insurance scams that we talked about on Second Reading, so I hope that the Government will accept the simple new clause. It would merely create a level playing field between flats and houses.

Sally Keeble: The new clause is an admirable attempt to extend the right of first refusal to houses but, unfortunately, the issue is more complex than it might seem on the face of it. The Landlord and Tenant Act 1987 was designed with flats in mind, and we would need to make many complex amendments to it to apply it to houses. Indeed, it might be simpler to start afresh—after all, we have two different Acts for enfranchisement, one for houses and one for flats. I do not mean start afresh with the Bill, which has already been debated twice elsewhere and once in this House. If we threw it out, it would try the patience of a House full of saints, which this House is not.
 In principle, we agree that it would be desirable to extend the right of first refusal to houses. Realistically, however, there is only so much that we can do in a single Bill. We cannot deal with that matter in this Bill. We have reluctantly concluded that we will have to leave the matter for another day, so I urge my hon. Friend to withdraw the motion.

Shona McIsaac: I thank my hon. Friend for that explanation. I said that the matter was simple but I accept that it would be tricky to amend the 1987 Act, which was designed for flats. The provisions on the subject are far simpler than many of the issues that we have debated, certainly in comparison to the rest of leasehold legislation. That is not to say that anything to do with leasehold is necessarily simple.
 I am glad that my hon. Friend agrees in principle that the right of first refusal should be extended to houses. She states that legislation might be introduced to deal with the matter specifically, as it cannot be included in the Bill. If we were to do that, what time scale is likely?

Sally Keeble: It would be completely impossible to give a time scale. We cannot predict what will be in a Queen's Speech.

Shona McIsaac: I thank my hon. Friend for that answer. I did not expect her to say that she thought that we could do it next week, but I think that we must create a level playing field as soon as possible. It would be desirable to give people in leasehold houses the same rights as those in flats. I shall reserve judgment until Third Reading, when I may return to the subject. I shall not press the new clause now, but I hope that
 my hon. Friend will say on Third Reading that she agrees in principle with the right of first refusal.

William Cash: On Second Reading, I said that I thought that a powerful case could be made for consolidating the law on leasehold and all that goes with it. I am not generally in favour of consolidation Bills with amendments, but for the reasons given by the Minister, that is a salutary example. However what may seem to be a good idea can create mayhem in relation to legislation. They say that the House of Commons in the only lunatic asylum run by the inmates. If we were to attempt to disentangle legislation for the purpose of this provision, we would probably stand guilty of the charge.

Shona McIsaac: I beg to ask leave to withdraw the motion.
 Motion and clause, by leave, withdrawn.

New clause 15 - Insurance provision under a lease

'(1) Any provision in a lease of a dwellinghouse to which this Act applies, whensoever created, requiring a tenant to insure with a nominated company and through the agency of a lessor (or both) or any other person, firm or company shall be void. 
 (2) Such provision shall continue to be in force so far as it relates to the insurance of a dwellinghouse against the usual household risks for the full reinstatement value and index-linked with any reputable insurance company. 
 (3) Where there is included in a lease of a dwellinghouse (other than a flat) to which this Act applies whensoever cleared a covenant by the Lessor to insure with right of recovery from the Lessee by way of additional rent or otherwise of the cost then the Lessee shall be entitled to give notice in a form prescribed and in accordance with regulations made by the Secretary of State whereupon the lease shall from the date specified in such notice be read and construed as if there were a covenant by the Lessee to insure in accordance with the terms of the covenant henceforth to be performed by the Lessee who shall produce on reasonable notice to the Lessor or his agent the policy of insurance and the receipt for the current premium paid, the covenant to insure by the Lessor no longer being of effect.'.—[Mr. Sanders.]
 Brought up, and read the First time.

Adrian Sanders: I beg to move, That the clause be read a Second time.

Alan Hurst: With this it will be convenient to discuss Government new clause 17—Insurance otherwise than with nominated insurer.

Adrian Sanders: We thought it important to table the new clause because of the insurance-related abuses that have come to our notice. It is good to see that the Government have tabled a similar new clause. I shall speak first to new clause 15.
 The problems experienced by leaseholders include having to use insurance companies nominated for leases granted many years—companies that no longer exist, or whose names are difficult to identify due to amalgamation, merger or reconstruction. The strict terms of the covenant in respect of nominated insurers are not always in force, and in some instances the rules are not applied; but if they are, it can seriously disadvantage the leaseholder. For example, a new landlord, by purchase of a ground rent, can bully, cajole and hassle tenants by seeking to enforce the strict terms of a covenant, and disrupt long-standing arrangements to gain commission. 
 Sometimes, double insurance is the result, with the complication of not knowing which company is providing cover in the event of a claim. Furthermore, changing insurer can cause serious loss to a lessee who has established a good record with an insurer. For example, something previously insured, such as subsidence—a common problem in some parts of the country—may not be covered by a new insurer. The lessee may feel aggrieved if the new insurer does not offer such comprehensive cover as the previous insurer. 
 Existing legislation provides for a lessee to refer the matter of insurance to a local LVT on the grounds that the insurance policy is unsatisfactory or the premium is excessive. However, that will not assist a lessee who wants the existing insurance cover to continue if the new landlord, by purchase, seeks to disrupt the arrangement. Most lessees will not wish to incur the expense of a reference to the tribunal. In a written reply on 10 July 2001, the Minister disclosed that since September 1997, when tribunals first gained jurisdiction, about 60 cases had been referred to them by lessees concerned about insurance. 
 The new clause is in keeping with modern consumer choice. It would give people a preference. Their choice of insurer should not be dictated by the freeholder. The intense competition in the insurance market means that it pays to shop around; why should lessees be denied the opportunity to do so? It ought to be everyone's right. The clause is designed to give lessees the power to choose their insurer. I would be interested to hear the Minister's reply on why our new clause is less effective than the Government's. I think that we both want to achieve the same objective.

Gareth Thomas: I agree entirely with the sentiments behind the Government amendment and I support it. I would like the Minister to address this issue, because it arises from my own constituency interests and those of the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd). We both represent seaside resorts on the north Wales coast. He represents Llandudno, that jewel of north Wales resorts. In that part of the country, there is a major landlord, Mostyn Estates, which owns the freehold of a considerable number of very nice and grand hotels on the seafront.
 For those hon. Members who have not been to Llandudno, I recommend it as an excellent holiday destination. I would also like to commend the Wales Tourist Board, whose representatives were here yesterday giving a presentation on its new promotion of Wales, for which the slogan is ''The Big Country''. Wales is very small, but people might be surprised to learn that if its mountains were flattened out, it would be the size of Texas—

Alan Hurst: Order. I am grateful for the geography lesson, but the hon. Member should stick to the terms of the clause.

Gareth Thomas: I am grateful for that gentle reprimand, Mr. Hurst, which I accept in the spirit in which it was intended.
 Why should the welcome concession in the Government's new clause be confined to private 
 dwelling houses? My understanding is that many hotel owners, probably not only those on the north Wales coast, are required by the freeholder to use a nominated insurer. That is certainly the case in Llandudno. They often discover, having researched the matter, that it is possible to obtain far cheaper insurance with cover just as extensive as that provided by the nominated insurer. 
 Will the Government consider extending the scope of new clause 17, which is very welcome, so as to include business leases? The grievance clearly applies to dwelling houses and private leaseholders—we know that there is abuse there—but the same problems arise in a business context, particularly as far as a certain hotel chain in north Wales is concerned.

William Cash: I shall speak briefly to the Government's proposals. It seems to me that there is a good case for ensuring that there is proper competition and that people have an option to apply for an alternative means of insurance when they are, as it were, a captive audience in their own premises. A landlord is entitled to be sure that the insurance is not placed with a bucket shop insurance company. After all, if there is a fire in a single unit in a block of flats, the whole place could go up, with tragic consequences. A degree of self-discipline is needed, but if necessary it should be enforced.
 I take the point made by the hon. Member for Clwyd, West (Gareth Thomas) about extending the scope of the provision. We need more competition. I do not know whether the Office of Fair Trading has discussed the matter with the Minister or with other Departments. However, as a matter of principle, and so long as one gets the balance right, lessees should not, any more than any other group, be obliged to accept specific insurance arrangements—provided, of course, that they do not put the property or other people living in the same block of flats at risk. 
 I generally welcome the idea that these proposals should be included in the Bill. I would add that one of the threats issued to people who are not prepared to take on nominated insurers is the threat of forfeiture, so it pops into that context as well. Some rather dubious insurance companies enter into arrangements with landlords, which can result in a situation that is gravely damaging to the interests of residents.

David Crausby: I thank the Government for having the wisdom to introduce new clause 17. We have not said much in support of the Government, but this is clearly an example of Ministers listening to what was said on Second Reading and taking note of it. I am grateful for that, as will be the hundreds of my constituents who will benefit. It may be an early example of the statecraft mentioned by the hon. Member for Solihull (Mr. Taylor). Let us hope so.
 New clause 15 has exactly the same wording as Baroness Hanham's proposed amendment the predecessor Bill, which she moved in another place in March 2001 by. In rejecting the amendment, Lord Whitty described it as a sledgehammer. I have some sympathy with that amendment, but new clause 17 is 
 not so crude. It will deliver what is required much more effectively, and ensure that the freeholder is protected. 
 In the midst of all this, we must not lose sight of the fact that insurance is important and that people should effectively be pushed into insuring their properties. It is important that houses are insured, especially terraced houses; insurance in such properties is just as important as in flats in high-rise developments, because there is a shared risk. 
 More important, new clause 17 protects leaseholders, many of whom have written to me about the intimidation that they have suffered. As we have heard, the ridiculous threat of forfeiture has forced people, particularly the elderly, to change their insurer and take out policies with a nominated insurer. That practice is not only an infringement of civil liberties and a denial of the freedom of choice, but an anti-competitive practice that we should all abhor. Insurance companies who participate in that practice should be ashamed. New clause 17 would clearly deny them the opportunity to trade in such a way, and it is welcome. 
 I have one question. Subsection (10) states: 
'' 'house' has the same meaning as for the purposes of Part I of the 1967 Act''.
 I want to be sure that that description is not limiting and that all dwellings will be covered, regardless of their value.

Brian Iddon: I, too, congratulate the Government on having tabled their new clause, which I fully support. The questions raised by My hon. Friend the Member for Bolton, North-East (Mr. Crausby) echo the complaints that I have received from my constituents about the Compton group, which seems to have bought thousands of freeholds throughout Bolton, in both his constituency and mine.
 Yesterday, I received a letter dated 18 January from Colin Graham, who lives in Altrincham, not far from Bolton, to say that that company had been operating there, too, for several years. He makes the point that it buys out rights, not for the income from the ground rents which are sometimes called ''builders' pensions''—perhaps others have heard that expression—but to pick out those parts of the covenants that it can exploit to its own financial advantage. 
 I have one of the letters sent by the Compton group to my constituents and those of my hon. Friend and I should like to read a paragraph from it. Bear in mind that the company does not have to buy these swathes of ground rents, but when it does, it makes complaints. The letter states: 
''The validation of thousands of different insurance policies on properties in which we have an interest is unworkable.''
 If the company is not prepared to work the original covenants, why on earth does it buy the ground rents? The letter continues: 
''To enable us to have more effective supervision of compliance with the insurance covenants we will, therefore, nominate and approve only one insurance company, AXA Insurance Ltd.''

William Cash: The hon. Gentleman has obviously looked into this. Is there any suggestion that there is a substantial commission—

Shona McIsaac: Of course there is.

William Cash: Perhaps, but it has not been raised yet. What it boils down to is that there is a grazing of rents—or whatever the expression is—and at the same time there is a bit of a milch cow to go with the grazing.

Brian Iddon: I do not need to answer that question. The hon. Gentleman has answered it himself.
 A final point made by Mr. Graham is that the letters from the Compton group 
''seem to arrive shortly before the individual householder's annual renewal is due''.
 That is worrying. If one has entered into a contract with a company, how does another company find out that one's insurance is due? I have noticed that just before my insurance is due, whether it is for buildings, contents, car or whatever, I am inundated with bumf. There must be a mechanism whereby companies around the land are fed with renewal dates of people all over the country. Whatever happened to the data protection legislation? This is a terrible practice and at some stage, in another piece of legislation, we should stop it.

Sally Keeble: New clause 17 is intended to deal with the problem of provisions in house leases that require the leaseholder to insure the property with an insurer nominated by the landlord. The problem was raised on Second Reading by many hon. Members, including the hon. Members for North-East Hertfordshire (Mr. Heald), for Cotswold (Mr. Clifton-Brown) and for Meirionnydd Nant Conwy, and my hon. Friends the Members for Burnley (Mr. Pike), for Hampstead and Highgate (Glenda Jackson), and for Bolton, South-East (Dr. Iddon). My hon. Friend the Member for Bolton, North-East also raised the matter strenuously even prior to the arrival of the Bill in the House. There was much interest in the issue, and in finding a way to deal with what was widely perceived to be an abuse of the system.
 All Committee members will agree that it is wrong for landlords to exploit a monopoly over the provision of insurance to gain higher commission. At the same time, we recognise that landlords have a legitimate interest in ensuring that leasehold property is insured. The new clause will allow leaseholders the opportunity to shop around for the best deal while providing protection for the landlord's interest. 
 The new clause provides that any clause in a lease requiring the leaseholder to insure with an insurer nominated or approved by the landlord will be deemed to be satisfied if certain conditions are met. They are that the leaseholder must insure the property with an insurer authorised to carry on business in the UK; that the policy must note the interests of both the landlord and the leaseholder; that it must cover the risks that are required to be covered in the lease and the amount of cover must not be less than that required by the lease; and that the leaseholder must provide the landlord with evidence of cover or renewal within 14 
 days of the insurance being taken out or renewed. Provision is also made for notification of insurance details to a new landlord if the freehold is sold. Those provisions should provide an effective remedy to the widespread abuses that have been occurring, while protecting the legitimate interests of landlords. As the question has been raised, I would say that part 1 of the 1967 Act is wide and covers anything that would normally be regarded as a house. 
 New clause 15 was tabled by the hon. Members for Guildford (Sue Doughty) and for Torbay. Some of the Government's objections to it have been mentioned in debate. It is clearly intended to deal with the same or a similar problem, but in one respect it goes further: where the lease requires a landlord to insure a house and to recover the cost through service charges, it provides an automatic right to transfer responsibility for insurance to the leaseholder. 
 Although I have some sympathy with the motives, there could be a disadvantage to that approach. Where houses on an estate are interdependent structures with communal parts, there might be, as in the case of blocks of flats, an advantage to having a single policy covering the whole complex. Otherwise, if one leaseholder fails to insure properly, there might be insufficient funds to rebuild the property if that becomes necessary. I am sure that we have all come across cases in which people have not adequately insured their properties. Where that is the case, we would not want arrangements whereby a landlord or a residents' management company had insured the whole to be fragmented at the whim of individual leaseholders. For that reason we cannot accept the clause as it stands. 
 It is our understanding that most house leases place the duty to insure on the leaseholder. Where a lease does provide for the landlord to insure, leaseholders can challenge the reasonableness of the insurance premium at an LVT under the provisions of the Landlord and Tenant Act 1985 relating to service charges. Leaseholders' rights in relation to service charges have been strengthened by other parts of the Bill and it is our also our intention to reduce the minimum fee for LVT applications to make it more cost effective to challenge small sums. 
 I am pleased that it has been possible to table new clause 17.

William Cash: I do not think that the Minister mentioned what I said about bucket shop insurance companies. Subsection (2) states:
''The tenant is not required to effect the insurance with a nominated insurer if . . . the house is insured under a policy of insurance issued by an authorised insurer''.
 That is further defined in subsection (10). Will the Minister remind us what effect section 19 of the Financial Services and Markets Act 2000 would have in that respect? Under the Financial Services Authority's remit, authorisation seems to be intended to impose some degree of solvency or credibility. That is an important ingredient. I have probably given the Minister's advisers enough time to pop a note to her.

Sally Keeble: I have already read out the conditions and safeguards that would protect the insurance level. Our reason for proposing new clause 17 and not accepting new clause 15 is that we want to ensure that proper arrangements are made for the insurance of property. I should point out that we are talking about buildings insurance and not contents insurance.
 The note that I have been given says ''to prevent dodgy insurers''. I am not quite sure about the legal definition of ''dodgy''—or of the term ''bucket shop insurance companies''. I want to be sure about that, so I shall write to the hon. Member for Stone giving precise definitions. If he has further questions about the provision, I shall ensure that they are dealt with on Report. 
 I hope that the Committee welcomes the fact that we have looked carefully at the question of nominated insurers, about which many have expressed concern, and I hope that the hon. Members for Torbay and for Guildford will withdraw their proposed new clause.

Gareth Thomas: I am grateful to the Minister for her exposition. I am not entirely sure whether she has answered my query about the applicability of such a clause to business tenancies.

Sally Keeble: The Bill deals with residential properties. We would need to consult about extending it to business leases.

Gareth Thomas: If I understand the Minister correctly, the Government are prepared to be open-minded about consulting, at a later stage, on a measure dealing with commercial leases.

Adrian Sanders: I am not sure whether I can answer for the Minister.

Alan Hurst: Order. It is a wide-ranging debate. I merely remind the hon. Gentleman that he was the mover of the lead new clause.

Adrian Sanders: I understand, Mr. Hurst, and no criticism was intended.
 I apologise to the Committee for taking time to debate new clause 15, and for having taken some of the Government's limelight—[Hon. Members: ''No.''] It would have been nice if we had been treated as if we had had something to do with it, but it did not happen. 
 I have no argument with the Government's new clause. Ours tried to go a bit further, but the Minister has explained why the Government do not wish to go that far. New clause 17 will make a big difference to the lives of thousands, perhaps tens of thousands, of leaseholders, and we are glad to support it. I beg to ask leave to withdraw the motion. 
 Motion and clause, by leave, withdrawn.

New clause 16 - Regulatory body for managers of property

'(1) After such consultation as he considers appropriate, the Secretary of State may by regulations provide for the establishment of a professional regulatory body for managers of property under this Part. 
 (2) The rules of the professional regulatory body shall be approved by him. 
 (3) The rules referred to in subsection (2) shall include provision for— 
 (a) a scheme of membership, 
 (b) standards for accreditation of members, 
 (c) fees to be charged to members in order to fund the operations of the body, 
 (d) procedures for complaints and disciplinary measures, and 
 (e) procedures for extending eligibility for membership to other managers of property. 
 (4) A statutory instrument containing regulations under subsection (1) shall not be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament'.—[Mr. Cash.]
 Brought up, and read the First time.

William Cash: I beg to move, That the clause be read a Second time.
 I do not want the Minister to have to waste a lot of time explaining why it would be inappropriate for a matter of such importance to be dealt with by regulations, so I hasten to say that the new clause is probing. However, it contains some important matters, changes to which have been long overdue. The Committee has consistently asked about threats, intimidation, and how and when we tackle the operations of leases and leaseholds as well as the relationships between landlords and tenants. 
 We must remember the realities of life. Someone probably has a batch of properties administered not by him, as he sits by his pool in Tenerife with his pina colada, but by a managing agent. Some managing agents are good, so there is no point pretending that they are all tarred with the same brush and have a wrong approach to running properties. Some are extremely bad, however. The Rachman tragedies in the early 1960s carried matters to extremes, and I am glad to say that subsequent legislation has dealt with such problems. 
 Threat and intimidation are still issues, especially when related to elderly people, those in deprived circumstances such as widows, people who understandably do not comprehend the intricacies of leases, and the plain ignorant. If we could find the time, perhaps many of us ought to read more of the small print on the relevant arrangements. Trust is conferred on the agents, who know perfectly well how much at risk the people in the premises are. It therefore seems essential that, as we have done elsewhere so often in the recent past, we add to the licensing arrangements for those with responsibilities that have a profound impact on the public at large. 
 I cannot give figures on how many managing agents there are. Perhaps the Minister knows about that, but there is a serious problem. Although associations exist, people also have opportunities to set up at will. There are no significant legislative prohibitions on people deciding to be managing agents, and they could easily be completely unqualified and unscrupulous. 
 I do not want to take over too much of the speech that the Minister is about to make but, in another place, the Minister who considered the clause said that 
''the right course is to proceed with consultation . . . We should use our best endeavours to seek to achieve that''
 via the first legislative vehicle available. He continued: 
''I am not in a position to say when that would be. We should hope that it would be in the next Session, but plainly that would depend on a whole range of unpredictable issues on which I am not in a position to comment.''—[Official Report, House of Lords, 19 November 2001; Vol. 628, c. 942–43.]
 That may still be the position now, only a couple of months on. However, it does not alter the fact that the proposal must be examined carefully, for all the reasons that we discussed. We talked about interweaving the realities of the running of these properties, including the fact that they are run by managing agents. It does not mean that managing agents will be driven out of business, just that they will be properly regulated. 
 We have heard representations from the Law Society, and from the Bar and all kinds of professional bodies, such as the Royal Institution of Chartered Surveyors. All those bodies are chartered. There are two ways of going about this. A body may be chartered and receive its charter from the Privy Council, subject to careful vetting and requirements to perform their functions in a particular manner, which sometimes have to be brought up to date. The alternative is the statutory licensing arrangement, which applies to many bodies, particularly in medicine, where bodies have grown up that have been endorsed by Acts of Parliament. I am pretty sure that, in the past, attempts have been made to legislate in that area. 
 I have made my point. It is important to address it, because when push comes to shove, the people sitting by their pools, or even running respectable property businesses, are not the people who enforce the threats and intimidation. They may not even know what the managing agent is doing. It is in everybody's interests to legislate on the matter, but it must be done on the basis of consultation. It must be reasonable and it must be fair.

Gareth Thomas: On Second Reading, I raised the issue of the need to regulate property managers in order to avoid abuse and exploitation, particularly of older people. There is some support among Labour Members for the sentiments expressed by the hon. Member for Stone. The Government need to re-examine the issue of regulation of property managers. The area is prone to abuse.

Sally Keeble: The new clause is designed to ensure that managing agents of leasehold properties meet certain standards. The Government certainly support that objective, and we have an open mind about the best way of achieving it. We intend to issue a consultation paper shortly, which will explain the options open to us. I have said that before, but I understand that the time frame has changed from ''shortly'' to ''very shortly''. Hopefully, the hon. Member for Stone will accept that there has been some improvement there.

Shona McIsaac: That is better than some time in the future.

Sally Keeble: Indeed.
 It would be wrong for us to pre-judge the outcome of that consultation process. However, the new clause appears to be intended to enable us to implement any kind of scheme that we might devise after the consultation process. I am very pleased that Opposition Members are prepared to trust the Government with such broad and sweeping powers—

William Cash: I prefaced my remarks by saying that the new clause was a probing amendment. I do not expect the legislative package that eventually emerges to have the width, breadth and depth of its provisions, but I made that point in my speech.

Sally Keeble: That is fair enough. Perhaps it would help if I spoke about the different issues that must be examined when considering the regulation of agents. A licensing scheme would be an effective way to stop rogues operating without a licence; otherwise, they would simply carry on as they have always done, with complete disregard for the law. I suggest that, if we did decide to go down the regulatory route, we might want powers to allow leaseholders to withhold service charges under certain circumstances. We certainly need a power to impose fines, and we might want to explore the possibility of harsher measures for the hard cases. We would not want to leave such measures to secondary legislation; they would have to be explicit in the Bill.
 We would also have to consider various practical issues. For example, we would need to include in the Bill a prescription for the constitution of any new body that was required. We are still considering whether any scheme should be confined to agents, given that problems may be caused by the landlord instead or, indeed, by any other person responsible for the management of the property. 
 On the face of it, the new clause appears to allow us the flexibility to decide on that point at a later stage, as we would wish. However, it would not enable us to make arrangements for the replacement of, for example, a landlord. Therefore if, say, a landlord were banned from managing leasehold properties, there would be a sort of interregnum when no one would have the responsibility—or the power—to manage the property at all. That would hardly be satisfactory and we ought to make provision in the Bill to resolve any such difficulty. 
 This is further complicated by the fact that we can think of two different ways in which we could deal with that particular problem. It may be that, when we consult on this issue, people will come forward with a third, better option. Doubtless, there would be other matters that we would need to address on the face of the Bill that have not yet been brought to our attention. Creating a power to implement a scheme of unknown scope, nature and detail would clearly be unwise. The new clause has been helpful, since it has made it possible to set out some of the issues and clarify our intention to consult very shortly on the issue. I hope that the hon. Member for Stone will be satisfied by our clear commitment to consult and that he will withdraw his new clause.

William Cash: I am glad to withdraw the new clause in light of what the Minister has said. We will probably return to the realms of company limited by guarantee, but in a different context, because that is how management companies are generally set up. It may be that the matter has to be dealt with by a much broader licensing arrangement, but there are so many precedents that I do not think that the draftsmen and the Government will have any difficulty in coming up with the right parameters.
 There is already a series of professional bodies that are regulated by Act of Parliament. Sometimes they are established by means of a private Member's Bill—that might be a hint to someone on this Committee, who might like to pick it up and run with it. If such a Bill were to receive the Government's support, so be it. The Minister's commitment is an important step in the right direction and I am glad to hear her remarks on the matter. 
 That brings me to the end, as far as amendments and new clauses are concerned, of my activity on this Committee, other than to listen to the discussion on the remaining Government amendments. I would like to say, before we finish, that I am glad that we have had a constructive debate. That is very important and I thank you, Mr. Hurst, for handling matters as you have. I beg to ask leave to withdraw the motion. 
 Motion and clause, by leave, withdrawn.

New clause 17 - Insurance otherwise than with nominated insurer

'(1) This section applies where a long lease of a house requires the tenant to insure the house with an insurer nominated by the landlord (''a nominated insurer''). 
 (2) The tenant is not required to effect the insurance with a nominated insurer if— 
 (a) the house is insured under a policy of insurance issued by an authorised insurer, 
 (b) the policy covers the interests of both the landlord and the tenant, 
 (c) the policy covers all the risks which the lease requires be covered by insurance provided by a nominated insurer, 
 (d) the amount of the cover is not less than that which the lease requires to be provided by such insurance, and 
 (e) the tenant satisfies subsection (3). 
 (3) To satisfy this subsection the tenant— 
 (a) must have given a notice of cover to the landlord before the end of the period of fourteen days beginning with the relevant date, and 
 (b) if (after that date) he has been requested to do so by a new landlord, must have given a notice of cover to him within the period of fourteen days beginning with the day on which the request was given. 
 (4) For the purposes of subsection (3)— 
 (a) if the policy has not been renewed the relevant date is the day on which it took effect and if it has been renewed it is the day from which it was last renewed, and 
 (b) a person is a new landlord on any day if he acquired the interest of the previous landlord under the lease on a disposal made by him during the period of one month ending with that day. 
 (5) A notice of cover is a notice specifying— 
 (a) the name of the insurer, 
 (b) the risks covered by the policy, 
 (c) the amount and period of the cover, and 
 (d) such further information as may be prescribed. 
 (6) A notice of cover— 
 (a) must be in the prescribed form, and 
 (b) may be sent by post. 
 (7) If a notice of cover is sent by post, it may be addressed to the landlord at the address specified in subsection (8). 
 (8) That address is— 
 (a) the address last furnished to the tenant as the landlord's address for service in accordance with section 48 of the 1987 Act (notification of address for service of notices on landlord), or 
 (b) if no such address has been so furnished, the address last furnished to the tenant as the landlord's address in accordance with section 47 of the 1987 Act (landlord's name and address to be contained in demands for rent). 
 (9) But the tenant may not give a notice of cover to the landlord at the address specified in subsection (8) if he has been notified by the landlord of a different address in England and Wales at which he wishes to be given any such notice. 
 (10) In this section— 
 ''authorised insurer'', in relation to a policy of insurance, means a person who may carry on in the United Kingdom the business of effecting or carrying out contracts of insurance of the sort provided under the policy without contravening the prohibition imposed by section 19 of the Financial Services and Markets Act 2000 (c.8), 
 ''house'' has the same meaning as for the purposes of Part 1 of the 1967 Act, 
 ''landlord'' and ''tenant'' have the same meanings as in Chapter 1 of this Part, 
 ''long lease'' has the meaning given by sections 74 and 75 of this Act, and 
 ''prescribed'' means prescribed by regulations made by the appropriate national authority.'.—[Ms Keeble.]
 Brought up, read the First and Second time, and added to the Bill. 
 Clause 171 ordered to stand part of the Bill.

Schedule 14 - Repeals

Sally Keeble: I beg to move, amendment No. 88, in page 134, line 39, at end insert—
'Commonhold and Leasehold Reform Act 2002 Section 102.'.

Alan Hurst: With this is will be convenient to take Government amendments Nos. 85, 86 and 87.

Sally Keeble: This is a group of technical amendments, which is intended to bring about the early commencement of clauses 102 and 168, 169 and 170 and to subsequently provide for the repeal of clause 102. It might be helpful to the Committee if I explain why that is necessary. Clause 102 amends the Land Registration Act 1925, to make the right to manage a registerable interest in land. The Bill currently provides that all the provisions of part 2 other than clauses 172 to 174 are to be commenced by order. That is to be done in England by the Secretary of State and in Wales by the National Assembly for Wales. The Land Registry has asked that we ensure that the clauses commence at the same time for England and Wales. We believe that the amendment is
 the most convenient way to achieve that.
 The amendment to schedule 14 is intended to provide for the repeal of clause 102. As we have discussed before, the Land Registration Bill is currently before Parliament and will repeal the Land Registration Act 1925. That will make clause 102 redundant. Therefore, amendment No. 88 will allow for the appeal of clause 102 of this Bill by order. Amendments Nos. 86 and 87 are consequential to that. 
 Members will notice that amendment No. 85 also provides for the early commencement of clauses 168, 169 and 170. That is consequential to the early commencement of clause 102. The main reason for the amendments is to ensure that clause 102 has effect in England and Wales at the same time. We must therefore commence the provisions relating to Wales at the same time as commencing clause 102. I hope that that has served to explain these technical amendments. 
 Amendment agreed to. 
 Schedule 14, as amended, agreed to.

Clause 172 - Commencement etc

Amendments made: No. 85, in page 87, line 19, at beginning insert 
'Apart from section 102 and sections 168 to 170,'.
 No. 86, in page 87, line 27, after '1' insert 
'or section 171 and Schedule 14 so far as relating to section 102'.
 No. 87, in page 87, line 28, after '14' insert 
'so far as otherwise relating'.—[Ms Keeble.]
 Clause 172, as amended, ordered to stand part of the Bill. 
 Clause 173 ordered to stand part of the Bill.

Clause 174 - Short title

Sally Keeble: I beg to move amendment No. 20, in page 87, line 35, leave out subsection (2).
 This is a technical amendment.

Adrian Sanders: I do not want to oppose the amendment, simply to take the opportunity to record my thanks for your chairmanship, Mr. Hurst, and for that of Mr. Illsley, and to thank other Committee members for what have been enjoyable and—given the original timetable—quick sessions to debate a complex Bill.

Sally Keeble: I very much appreciate your chairmanship, and that of Mr. Illsley. They have been extremely important in moving the debate along. It has been an extremely good debate for both sides, and it has been conducted with good humour. I am sure that you, Mr. Hurst, have contributed to that good humour with your chairmanship. The debate has given us all a good appreciation of some of the issues that arise in relation to property tenure in various parts of the country. As so often happens, legislation that touches on hon. Members' constituency interests and experiences is given an extraordinarily high level
 of scrutiny, and a real exchange of views and expertise takes place.
 The Committee has made considerable progress in improving what was already an extremely good Bill which will make a real difference to the lives of many people. I look forward to continuing the debate on Report.

William Cash: I only wish to add that, if we are to have two days on Report, it is important that we do not programme our debates to the point where we cannot use the time properly. I include such things as the unguided missile of an unexpected statement—or two—that can suddenly appear out of the blue.

Shona McIsaac: Or three on both days!

William Cash: Or even three, as the hon. Lady says.
 As I said on Second Reading, we should conduct our proceedings in the national interest. We believe that these proposals can lead to improvements, and 
 further improvements are yet to be made—but, for heaven's sake, we should be sure of using our time properly on Report. I invite the Government to bear those thoughts in mind. 
 I thank you again, Mr. Hurst, and you co-Chairman, Mr. Illsley, for chairing our Committee so well. I thank also those others who are not known to be present but who have helped us to get through our proceedings so expeditiously.

Alan Hurst: Order. Most of what has just been said was out of order, but I am sure that it was appreciated.
 Amendment agreed to. 
 Clause 174, as amended, ordered to stand part of the Bill. 
 Bill, as amended, to be reported. 
 Committee rose at seventeen minutes to Five o'clock.